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Lundbeck Korea: Managing an International Growth Engine Case Solution
Lundbeck is a small-scale pharmaceutical company that targets the segment of central nervous system (CNS). Most of the company’s revenues are derived from two of its major medicines: Lexapro and Exiba. The company derives most of its revenues from European and American territories. The company has targeted Asia only recently, but it is a high growth segment. Different markets in Asia report to one regional vice president, who is responsible for implementing the company’s strategy in the Asian markets. The country manager of Korea is not happy with this organizational structure, as he believes that the Korean market is significantly different from the rest of Asia. The alternative approach is to permit the Korean country manager to pursue an independent strategy, and allow him to report directly to the head office. The proposed structure might be attractive because some the strategic conflicts that have arisen in the past might not have been handled by the regional vice president in the best interests on the company. It is believed that the company has been too strict in implementing its strategy without regards to the differences in various geographical markets. However, a mere change in the organization structure might not provide an adequate solution. The regional vice president has made a significant contribution to the superior performance of the company. The company might be able to benefit from his input on the critical Korean market. Nevertheless, the company needs to reduce his influence and give more autonomy to the country manager, who is better informed about the local market conditions. The company should allow the country manager to make operational decisions, while the regional vice president should supervise the operational performance and provide strategic guidance. The company should also enable a feedback channel where the country managers can provide essential feedback about proposed strategic decisions.
Following questions are answered in this case study solution:
Recommendation and Implementation Plan
Lundbeck Korea Managing an International Growth Engine Case Analysis
The country manager for South Korea, Jin-Ho Jun, did not agree with some of the strategic decisions of the Regional vice president, Asif Rajar. Jun believed that the Korean pharmaceutical market was different from the rest of the Asian markets and Rajar did not have a good understanding of the Korean market. Thereby, Jun was of the view that the strategic decisions taken by Rajar might have been appropriate for other regions, but they were not suitable for the Korean market. There had been many examples where the viewpoints of Jun and Rajar had diverged. This had included seemingly petty issues such as the car used by Jun. However, some the issues where opinions had diverged were very significant. For instance, there had been considerable disagreement on whether a next generation drug, Lexapro, should replace Cipram. Similarly, there had been some disagreement over the approach taken towards the marketing expenditure of the Korean business segment. Rajar believed that the approach of targeting few opinion makers was risky, while Jun argued that this was the best approach to influence the physicians. The nature of these issues was quite significant. Michael Anderson, the central vice president of Lundbeck, was perplexed about the future course of action. Jun was propagating the argument that Rajar’s limited knowledge of the Korean market was detrimental to the long-term growth and profitability to the company’s operations in Korean. The implication was that the company would be better served if the Korean business segment reported directly to the head office. However, Rajar had been quite successful in implementing the company’s strategy in the Asian markets, and it might not be suitable to remove his fastest growing business unit.
The argument that the Korean market is different from the other markets holds some traction. The company had entered the Korean market only recently, which might be the main reason behind the lack of understanding of the company’s senior management. The unique regulatory and the cultural environment of the Korean market might demand more flexibility in executing the business strategy of Lundbeck. Jun was an avid proponent of Lundbeck’s strategy, but he believed that the strategy needed to be modified into the context of the local environment. On the other hand, Rajar believed that the Korean market was not very different from the rest of the Asian markets. Rajar was focused on promoting consistency and efficiency among all the Asian markets. This difference in opinions had led to considerable issues in the past.
Although some of the issues such as the car driven by Jun can be deemed insignificant, they indicated a difference in philosophy between Rajar and Jun. This difference exhibit itself in more strategic decisions such as the replacement of Cipram by Lexapro. Jun was convinced that this was not a good move since the drug was not fully established in the Korean market. Jun thought that the replacement might diminish the physicians’ confidence in the drug. It is believed that the argument posed by Jun carry considerable weight. The success of Cipram was already under suspicion because the Korean market already had four well-established substitutes. Therefore, such a move can make the physicians lose confidence in Lundbeck’s drug and make them shift to competitor’s products. Jun believes that Rajar decided against Jun’s recommendation because he did not want to lose control of the Korean business unit and allow them to pursue an independent strategy. This argument also carries weight, as Rajar has always been a proponent of consistency among the different Asian markets.
However, the approach of Rajar has been quite successful in the past. The company has benefit greatly from the contributions of Rajar, who has done well to integrate the Asian market and successfully implement the company’s strategy in these markets. Rajar has always focused on promoting efficiency and cutting the unnecessary expenditures of the company. Therefore, he cannot be blamed from proposing that the marketing approach taken by the Korean business unit is expensive and risky. He makes a valid point when he proposes that the other Asian markets are also hierarchal and his strategy of across-the-board marketing has worked well in other regions as well. Rajar has produced excellent results and it might be demoralizing to strip-off one of his high growing units.
It is not clear how the Korean division will perform if it reports directly to the central vice president. There is no reason to believe that Michael Anderson will be able to understand the Korean market’s requirements better than Asif Rajar. In fact, Rajar has considerable experience with the Asian markets and is probably better equipped to handle the Korean market than Anderson. Although the Korean market is growing fast, it is still not profitable. Under such an environment, the expertise of Rajar in promoting efficiency might be beneficial. The international market is only a small portion (less than 10% in terms of revenues) of the overall market. Therefore, Anderson may not be able to give Korean the specific attention that it demands. Moreover, if the company decides to make Korean independent from the Asian market, it might encourage other market such as China to seek similar treatment. Asif Rajar, who has done well for the company, may not be particularly happy with such developments.
Recommendation and Implementation Plan
It is not clear if a change in the reporting structure would bring about any changes in the manner in which the Korean market is being handled. Although the head office is probably right in its desire to closely follow the progress of the Korean market, there is no reason to change the reporting structure. The current reporting structure has generally been successful in most of the Asian markets. It is recommended that the company’s management show trust in Asif Rajar’s ability to handle the Korean market and let him oversee the relevant business unit. However, the company needs to find a way to provide more autonomy to Jun without compromising the authority of Rajar. Moreover, Anderson needs to consider an alternative approach that will enable to head office to donate more time to the Korean business unit.
Although most of the company’s current revenue is generated from the European and American markets, the Asian markets are promising a much higher growth rate. It can be argued that the company’s current products are nearing their maturity in the western market, whereas the Asian markets requires more strategic attention in order to realize the growth potential offered by these markets. Moreover, the company needs to realize that the Asian markets, especially the Korean and Japanese markets, are quite different from the western markets concerning the differences in culture and regulations. Therefore, the company’s central strategy needs to be molded with the requirements of the Asian markets.
The company is currently following a top-down approach is Asia where the strategy proposed by the head office is implemented in the end markets. The company needs to develop a bottom-up channel through which it can integrate the feedback from the country manager into its strategy. For instance, the feedback of Jun regarding the nature of the Korean market and his propositions regarding the introduction of Lexapro might have been significant. Although Jun did provide his feedback on the introduction of Lexapro, the strategy to introduce Lexapro had already been taken and Rajar cannot be blamed for being faithful to implementing the strategy. In an ideal situation, the head office should have asked Jun for his feedback regarding the viability of the strategy in the Korean market before deciding to implement it. Therefore, it is important for the head office to maintain a direct communication channel with each of the country managers and account for their feedback in the decision-making progress.
The company should be careful, not to undermine the authority of Rajar in establishing the communication channel. Rajar should continue to implement the strategic decisions of the company, but the country managers should have the flexibility to voice their disagreements to the head office. Such a mechanism would also ensure greater accountability for Rajar. A downside is that Rajar might not be very happy because the new plan provides the country manager with an option to bypass him and communicate directly with the head office. The company should also be careful not to diminish the importance of Rajar in constructing the strategic approach of the company.
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